As financial advisors, you serve a greater good – the financial well-being of your clients. You are tasked with anticipating global opportunity and navigating change while striving to exceed your clients’ expectations. It is a tremendous responsibility with exceptional rewards. Advisors can be found among a family’s most trusted relationships, participating in critical decisions and providing the dual blessings of wealth: freedom and security.
We find a growing number of clients seeking to align their investments with their values. For financial advisors, this trend coincides with the rise of impact investing, a market with the potential to reach $1 trillion by 2020, according to JP Morgan and the Global Impact Investing Network.1 Impact investments are investments made into funds, companies, and organizations with the intention to generate measurable social, economic, and environmental impact alongside a financial return.
Industry studies indicate that developing an impact investment offering is a critical element to better meeting the needs of your clients. According to the US SIF 2012 Report on Sustainable and Responsible Investment Trends in the United States, 72% of advisors stated that fulfilling client demands was the top reason they are incorporating environmental, social and corporate governance factors into their investment analysis.2 According to the U.S. Department of Education, women control 60% of wealth, and their numbers are growing at twice the rate of men’s – prompting estimates that by 2030, women will control two-thirds of wealth in the U.S. In the U.S. Trust study, 65% of women respondents believe it is important to view investments through the lens of their impact on society and the environment.
Figure 1: Reasons for Incorporating ESG Criteria into Investments, % of Money Managers Surveyed
Can advisors expect other benefits from an impact investing program? Conversations with several leading impact advisors reveal that their impact investment programs have led to growth in assets under management, higher rates of client retention, and a more sophisticated understanding of global risk. Veris Wealth Partners LLC, with over $600 million in assets under management, is an independent registered investment advisory firm that specializes in sustainable and impact investing for high net worth, family and foundation clients. Veris’ approach to impact investing is a key differentiator and one of the primary reasons the firm has grown assets rapidly over the last five years. In addition to its client focus, Veris has played a significant role in the launch of new impact investment products. Veris also serves as the consultant and strategic partner for the Envestnet Sustainability Platform – a marketplace for investment funds and research used by hundreds of financial advisors. In the words of Veris Founding Partner Anders Ferguson, we are “moving from corporate social responsibility to driving corporate change and profitability through the capital markets. Working with Veris, clients can achieve positive impact across all asset classes, assess risk more comprehensively, and identify opportunities to generate alpha.”3 Veris views its impact investing expertise as a way to form deeper bonds with clients that connect values with clear financial goals.
In addition to driving asset growth in wealth advisory, impact investing can serve as a bridge between generations to boost client retention after a wealth transfer event. According to the World Economic Forum 2013 Report, From the Margins to the Mainstream, “Over the next 40 years, Generation X and the Millennial Generation will potentially inherit an estimated $41 trillion from the Baby Boomer Generation. These generations have grown up in a culture that calls on business to play a more active role in society.”4 Impact investment opportunities speak concretely to these aspirations and provide advisors a powerful tool in engaging the wealth inheritor. In my own experience leading teams of wealth advisors managing over $50 billion in capital, one of our key issues was managing the potential termination of an advisor relationship upon the event of a wealth transfer. Understanding the values and causes of the next generation, and how impact investing can help meet those needs, can often dramatically increase retention rates for advisors.
Chilton Capital Management5 , a Houston, Texas-based Registered Investment Advisor with nearly $1 billion in assets, asserts that they are seeing the tangible benefits from their commitment to expand their impact offerings alongside traditional strategies to their multi-generational clients. “We believe millennial wealth transfer will lead to significant adoption of impact-oriented strategies. Those firms who can most effectively juxtapose old and new are best positioned to capture market share,” remarks Chris Knapp, Chilton founder and CEO.6 Serving as advisor to multiple generations, questions on impact investing are typically coming from the younger generation who are or will soon be decision makers in their respective families with regard to manager and strategy selection. The opportunity is to develop a dialogue with this next generation and provide robust impact investment options that align with their objectives. Chris also observes that “beyond statistically robust arguments that properly vetted impact strategies can and will make meaningful gains in helping to solve some of our most daunting problems, we see daily confirmation that, for our clients, the qualitative aspects (of impact investing) are real and often able to bring meaning and engagement to material prosperity.”
The rise of impact investing has the potential to affect the financial advisory industry in profound and permanent ways. For advisors equipped with the proper tools to engage and deliver results, it equals tremendous opportunities for their business, with existing clients and the next generation.
By Gloria Nelund of TriLinc Global